What is the minimum salary you would accept compared to your net worth if you were worth US$2 million? For example, would you work full time for $100k, 5%? I’m thinking 7.5% is in the ballpark. Marginal utility seems to apply to everything in life.
Almost completely useless comparison, IMO. Net worth is generally a function of age (assuming gainful employment) and you’re not poor, since your 401k and/or pension benefits grow with age. At my age, my annual salary is 50% of my net worth, but I’m 25ish. So the denominator of that equation is pretty low. I’d assume that % declines throughout time, though I’d hesitate to say its linear. Depends entirely on where on the income scale you fall.
Just two data points, but both my father and grandfather are both independently worth mre than your threshold and their annual salaries are ~$40k and $0 respectively. Dad is semi retired from the company he founded and gramps doesn’t take a salary despite being actively involved because its his company and all the profits are his.
So your question is, if you have $2 million, what is your minimum salary before you quit work? It really depends. Let’s say it gets you $80k a year with relative safety through investments. For me, even a small amount of additional income, say $40k, would increase my margin of safety by a lot. Plus, don’t forget that you can do any job you want. Even if money was unlimited, I might go work in the SPCA and play with cats and dogs all day. The quality of your work life also matters. Working 40 hours a week would be considered a luxury to many people in finance jobs.
There seems to be spurious correlation between your salary and your networth.
Depends what my networth is in. The simplest distinction is whether it is income producing or not.
Assuming your net worth is liquid, can’t you just invest it in some income asset?
Agreed.
The Oracle has a net worth of…a lot. His salary is $100k. In fact, my family’s salary (me + my wife) is higher than his family’s salary.
Yes, you can. But networth isn’t always liquid. For example, someone could own lots of land but as it currently stands there is no income production off of it. Or their networth is of a few subdivisions they’ve developed but haven’t been able to sell because of the crisis. You could always try to “convert” that into liquidity via a secured loan and invest it, but if the purposes of the loan is for investments I think there are laws governing that. But not so sure
Marginal utility doesn’t apply. Once I have enough to live comfortably indefinitely I will just do what I want. I’ll still work, but I will probably change jobs more frequently and be more physically active. Time is the only limited resource, and I don’t want to spend mine doing something I don’t enjoy for longer than I have to.
I wouldn’t work for less than my current compensation unless I already had enough to fund my retirement and just wanted something to keep me busy.
Wait, your salary divided by your net worth is supposed to be a positive number?
I’d certainly hope so. If that number is negative, you either have a negative net worth or you’re paying people for your labor income.
Only if you’re dumb enough to not be financing your lifestyle with other people’s money. Leverage up baby!
I don’t think negative net worth is really all that bad, if you’re young and financed an education and a house. It’s not an ideal situation, but there are certainly worse things than having student loan debt and a mortgage.
Now if you’re 50 and still have negative net worth, then there’s probably a problem somehwere.
It was mostly a joke. I’m pretty sure my house has been bubbled up enough that I now have a positive net worth.
To answer the question from the original post, if I had a $2 million net worth, I’m assuming my house is paid for and the kids college is covered. At that point, I need to cover bourbon, cable, golf and health insurance. I’d probably work at the course for free if they’d help me out on the bourbon and golf side of things. So then it’s just up to my wife to find a job with health insurance.
Wow, really have to be specific around here. I was thinking total compensation for a “real” full time finance job. I thought, as a general rule, the more money somebody has, the more money it would take to keep them working. Some super model once said she doesn’t get out of bed for less than $10k a day. Probably wasn’t the case when she was starting out. Definitely don’t ever share that you have broken the golden handcuffs. Make sure the boss thinks you’re spending it as fast as it comes in. Hard to control a kidless single saver.
That supermodel was Linda Evangelista.
^ That supermodel still is Linda Evangelista. She might be pushing 50, but she ain’t dead yet.
Awesome. “We don’t wake up for less than $10,000 a day.” Like they are a seperate species. Love it. And Canadian as well. Do you have a working knowledge of supermodels? Beats professional atheletes for sure.
For 2 million in raw cash, I’d actually consider stop working alltogether (I’m in my early 30s). Hear me out:
General cost of living - Stop assuming that we’re talking about NYC or San Fran here. If you absolutely must insist on living near those places, sack up and pick a cheap suburb. But the big draw of those cities is the availability of jobs. Why pay for those entitlement programs and taxes to fight over limited space if you dont need a job there?
Taxes : Since I"m not earning any income, I don’t have to worry about a big tax bill.
Nest egg : Since I’m starting off with the nest egg, I don’t have to worry about retirement contributions that would alter annual cashflow.
Housing - To put things in perspective, a beautiful newly constructed home in various parts of TX, FL costs under 200k. I’ll also assume a a reverse mortgage as an escape hatch for later years. I mention these states in part because there is no state-level income tax, though there is property tax. (let’s be ridiculous and assume 2%) per year
Investments : Let’s be conservative and say that your you have 1.8M that is going to last 60 years. Assuming the investments keep pace with inflation, that’s still $30,000 per year, increasing with inflation.
Lifestyle : Can you live off of 30,000 per year if you don’t have to pay state taxes, federal taxes, and mortgage/rent? I’d think so.
- 4000 for property tax
- 3000 for utilities (gas, water, electricity, internet, cable, Netflix etc)
- 1000 for communications (mobile phone)
- 1000 for real estate expenses such as repairs
- 3000 for medical insurance (and you might not need it at age 65 if Medicare is around)
- 5000 for groceries and household supplies (toilet paper, Lysol)
- 1000 for auto repair, maintenance
- 1000 for gas
- 1500 for car (if you assume a new 24,000 Camry will last you 16 years)
- 500 for healthcare (dental cleanings, prescription drugs)
- 1000 for a gym membership and athletic activitie
all these necessities only add up to 23,000. Granted, this is under the assumption that you’re like me and dont drink/smoke. If you like to go out to nighclubs and make it rain, GAME OVER.
You still have 7,000 annually for
- Dining out. By my math, you can blow $20 a day dining out and still be within budget (since that’s one less meal you’re cooking at home)
- entertaining your friends with movies
- regular vacations. Pretty sure I could squeeze a lot of cruises out of that money if I go during off-season. Since I’m not tied to a day job, I can pack my bags and capture the last-minute deals at a moment’s notice.
Could I send my kid to Harvard on that kind of money? NO
Could I take a vacation in those space tourism shuttles? NO
Could I stroke a cheque for $30,000 to my alma mater and get a computer lab named after me? NO
But I’d have a lot of peace of mind, freedom to study what I want, play as much as want, travel when I want, and I could participate/contribute to the community. That’s more time to study my CFA here on the forums with you all!